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Chapter 14
Aggregate Sales and
Operations Planning

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OBJECTIVES
Sales and Operations Planning

The Aggregate Operations Plan

Examples: Chase and Level

strategies

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Exhibit 14.1 Process planning
Long
range Strategic capacity planning

Intermediate Forecasting
& demand Sales and operations (aggregate) planning
range management
Sales plan Aggregate operations plan
Manufacturing
Services
Master scheduling

Material requirements planning

Weekly workforce and

Order scheduling customer scheduling
Short
range Daily workforce and customer scheduling
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Sales and Operations Planning

Activities
Long-range planning
Greater than one year planning horizon
Usually performed in annual increments

Medium-range planning
Six to eighteen months
Usually with weekly, monthly or quarterly
increments

Short-range planning
One day to less than six months
Usually with weekly or daily increments

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The Aggregate Operations Plan

Main purpose: Specify the optimal
combination of
production rate (units completed per
unit of time)
workforce level (number of workers)
inventory on hand (inventory carried
from previous period)
Product group or broad category
(Aggregation)
This planning is done over an
intermediate-range planning period of 3
to18 months

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Balancing Aggregate Demand

and Aggregate Production Capacity
10000
Suppose the figure to 10000
8000
the right represents 8000 7000
6000
forecast demand in 6000 5500
4500
units
4000

Now suppose this 2000

lower figure represents 0
the aggregate capacity Jan Feb Mar Apr May Jun
of the company to
meet demand 10000 9000
8000
8000
What we want to do is 6000
6000
4500 4000
balance out the 4000
4000
production rate,
workforce levels, and 2000

inventory to make 0
these figures match up Jan Feb Mar Apr May Jun

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Required Inputs to the Production

Planning System
Competitors Raw material Market
behavior availability demand
External
to firm
External Economic
capacity Planning
conditions
for
production

Current Current Inventory Activities Internal

physical workforce levels required to firm
capacity for
production
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Key Strategies for Meeting Demand

Chase

Level

Some combination of the two

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Aggregate Planning Examples: Unit

Demand and Cost Data
Suppose we have the following unit
demand and cost information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Materials $5/unit
Holding costs $1/unit per mo.
Marginal cost of stockout $1.25/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required .15 hrs/unit
Straight time labor cost $8/hour
Beginning inventory 250 units
Productive hours/worker/day 7.25
Paid straight hrs/day 8
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Cut-and-Try Example: Determining

Straight Labor Costs and Output
Given the demand and cost information below, what
are the aggregate hours/worker/month, units/worker, and
dollars/worker?
Demand/mo Jan Feb Mar Apr May
Jun
4500 5500 7000 10000 8000 7.25x2
6000 2
Productive hours/worker/day 7.25
Paid straight hrs/day 8
7.25x0.15=48.33
22x8hrsx$8=$140 &
Jan Feb Mar Apr May
84.33x22=1063.33 Jun
8
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1063.33 918.33 1015 1015 1063.33 966.67
$/worker $1,408 1,216 1,344 1,344 1,408 1,280
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Chase Strategy
(Hiring & Firing to meet demand)
Lets assume our current workforce is 7
Jan workers.
Days/m o 22
Hrs/wo rker/m o 1 5 9 .5 First, calculate net requirements for
Units/wo rker 1 ,0 6 3 .3 3 production, or 4500-250=4250 units
$ /wo rker $ 1 ,4 0 8

Then, calculate number of workers

Jan
needed to produce the net
Dem and 4 ,5 0 0
requirements, or
Beg. inv. 250
Net req. 4 ,2 5 0
4250/1063.33=3.997 or 4 workers
Req. wo rkers 3 .9 9 7
Finally, determine the number of
Hired
Fired 3
workers to hire/fire. In this case we
W o rkfo rce 4 only need 4 workers, we have 7, so
Ending invento ry 0 3 can be fired.
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Below are the complete calculations for the remaining

months in the six month planning horizon
Jan Feb Mar Apr May Jun
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1,063 918 1,015 1,015 1,063 967
$/worker $1,408 1,216 1,344 1,344 1,408 1,280

Jan Feb Mar Apr May Jun

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0

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Below are the complete calculations for the remaining months in

the six month planning horizon with the other costs included
Jan Feb Mar Apr May Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
W orkforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0

Jan Feb Mar Apr May Jun Costs

Material $21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 203,750.00
Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62
Hiring cost 400.00 200.00 600.00 1,200.00
Firing cost 750.00 500.00 250.00 1,500.00

$260,408.62
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Level Workforce Strategy (Surplus

and Shortage Allowed)
Lets take the same problem as
before but this time use the
Level Workforce strategy Jan
Demand 4,500
This time we will seek to use
a workforce level of 6 workers Beg. inv. 250
Net req. 4,250
W orkers 6
P roduction 6,380
Ending inventory 2,130
Surplus 2,130
Shortage
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Below are the complete calculations for the remaining

months in the six month planning horizon

Jan Feb Mar Apr May Jun

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300
Net req. 4,250 3,370 4,860 8,770 10,680 7,300
Workers 6 6 6 6 6 6
Production 6,380 5,510 6,090 6,090 6,380 5,800
Ending inventory 2,130 2,140 1,230 -2,680 -1,300 -1,500
Surplus 2,130 2,140 1,230
Shortage 2,680 1,300 1,500

Note, if we recalculate this sheet with 7 workers

we would have a surplus

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Below are the complete calculations for the
remaining months in the six month planning
horizon with the other costs included
Jan Feb Mar Apr May Jun
4,500 5,500 7,000 10,000 8,000 6,000 Note, total
250 2,130 10 -910 -3,910 -1,620 costs under
4,250 3,370 4,860 8,770 10,680 7,300
6 6 6 6 6 6 this strategy
6,380 5,510 6,090 6,090 6,380 5,800 are less than
2,130 2,140 1,230 -2,680 -1,300 -1,500
Chase at
2,130 2,140 1,230
2,680 1,300 1,500 $260.408.62
Jan Feb Mar Apr May Jun
$8,448 $7,296 $8,064 $8,064 $8,448 $7,680 $48,000.00 Labor
31,900 27,550 30,450 30,450 31,900 29,000 181,250.00 Material
2,130 2,140 1,230 5,500.00 Storage
3,350 1,625 1,875 6,850.00 Stockout

$241,600.00
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End of Chapter 14

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